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contributed to our failure to grapple with the issue in a broad-
gauged, principled way under the Federal common law of taxation
as adopted by the Supreme Court. Instead, we’ve been beguiled by
“attenuated subtleties” and “refinements” into treating the
problem as one of determining the claimant’s retained legal
rights in his cause of action under State law.
The taxpayer in Cotnam had rendered housekeeping services to
an elderly individual during the years 1940-44 in consideration
of his promise to bequeath her one-fifth of his estate.
Following his death without a will, she entered a contingent fee
agreement with attorneys who successfully prosecuted her claim to
judgment against the estate. The check for the $120,000 recovery
(plus approximately $5,000 in interest), which was received in
1948, was made payable to the taxpayer and her attorneys. After
endorsement by the payees, the check was deposited in the
attorneys’ bank account. Retaining their fee of $50,000, the
attorneys gave the taxpayer their check of $75,000 for the
balance (amounts rounded off).
The Commissioner determined that the recovery was
compensation income rather than a nontaxable bequest and
apportioned the gross recovery under section 107 of the 1939 Code
over the 4-1/2-years the services were rendered. In applying
section 107, the Commissioner allowed the legal fee as a
deduction only in the year paid, in which the taxpayer had
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